Tesla will build the factory in China

An agreement with the city of Shanghai would allow Tesla to build its facilities in Lingang development zone and could come as soon as this week, the report said.

Shares of Tesla rose almost 3 percent in the premarket Tuesday after Bloomberg News reported the electric vehicle company is close to a deal to produce cars in China.

Telsa Inc. (TSLA) shares are expected to open sharply higher Tuesday amid reports the group may open a new production facility in China, a move that would avoid tariffs in the world's second-largest economy but risk the ire of U.S. President Donald Trump's "buy American, hire American" industrial policy.

Tesla would need to set up a joint venture with at least one local partner under existing rules and it isn't immediately clear who that would be. Shanghai Jinqiao, Suzhou in Jiangsu province, and Hefei in Anhui province have all been rumored as possible factory locations.